Uninvestable Tesla

Tesla is an uninvestable stock for me, not just because of its high valuation but also because it fails our fairly basic quality test, which I shamelessly borrowed from Warren Buffett: Would I still buy this stock if right after the purchase the stock market were to close for ten years? If you are a big Tesla car and stock fan, before you start throwing rocks at me, pause and wait till you finish this article – the rocks and I will still be there.

Think about the next ten years. But before you start mentally drawing upward-sloping lines from the current environment into the next decade and drooling over the rosy vision of Tesla’s future that Elon Musk has painted – produce half a million model 3s and bunches of semis and roadsters, and then send a roadster to Mars (I kid you not; that is in his 2018 plan – I’d like you to think about another version of the next ten years: higher (maybe much higher) interest rates, a recession in the US and around the globe, and a less promiscuous bond market where Tesla would have pay a substantial premium to US Treasuries (as would any other company that loses over a billion dollars a year in a highly cyclical industry). And now answer this question: Would Tesla survive this change in economic weather if it happened next year or even three years out? And the answer is … a weak “maybe” at best, and “unlikely” at worst.

The counterargument I’d get: Yes, but we are not going into a recession. Actually, we are. I (and nobody else, for that matter) just don’t know when. After nine years of appreciating stock markets and tepid economic growth, we tend to forget that recessions are a regular  economic fact of life, usually arriving every four to five years (so we are overdue for one). Most Millennials have yet to experience adulthood (have a job and a family) through a recession. They have also never had to borrow at high interest rates – but that is liable to happen, too.

Recessions are usually caused by expansions. Recessions are like the hangover that comes after the wild college party (economic expansion). It’s hard to have a good, fun college party with lots of booze and then not experience a hangover. (I am not speaking from recent personal experience but rather am trying to communicate in language to which Millennials can relate). During the expansion party, companies may build up too much inventory or erect too many factories, and consumers may overconsume.

If you own high-quality companies, ones that meet Buffett’s “ten-year stock market closed rule” (as we do), you don’t have to spend a lot of time and energy thinking about when the recession will hit (we don’t). However, if you own Tesla you’d better have a very clear, shiny crystal ball that will reveal lots of detail about the direction of interest rates and the global economy.

Recessions are tough for deeply cyclical companies: The bulk of their costs are fixed, and thus lower sales usually result in significant declines in net income and often lead to losses. This is why car companies and their deeply cyclical brethren don’t trade at high price-to-earnings levels when the economy is doing well. That is when their earnings are high. The market doesn’t usually take these high earnings at face value, knowing full well that there are lower earnings (or losses) around the corner when recession comes. Tesla, however, doesn’t have to worry about this low price-to-earnings problem, because in spite of its $50 billion market valuation, it has no earnings, just losses. It trades at whatever price-to-future Elon Musk tells you it does.

If you own Tesla stock and you only see one rosy (Musk) version of the future, you are ignoring the very real risk that the benign economic environment of today will not persist indefinitely into the future . Good luck – you’ll need plenty.

One additional but very important point. In the past I was dismissive of traditional automakers’ ability to compete with Tesla. I felt their hundred-year past of producing internal combustion engine (ICE) cars was going to hold them back, the same way Nokia’s dumb-phone past prevented it from effectively competing against Apple’s iPhone. Nokia tried to take the dumb-phone operating system Symbian and turn it into a smartphone operating system. It had a lot of engineers who knew the Symbian operating system, and thus it seemed a logical path at the time. The right approach would have been the more difficult one: Hire new engineers and create a brand new operating system. There was absolutely no reason why Nokia could not have developed its own Android-like OS, even if doing so would have required either retraining or, more likely, laying off Symbian engineers.

For a while it looked like I was right about cars, as the Big Three took a hybrid (Symbian-like) approach to electric cars – they were having a hard time saying goodbye to ICE. However, as we look at the future lines of electric cars coming from  US and German automakers, we now see them severing the connection to their ICE past and embracing electric.

Disclosure: I am an unsecured lender to Tesla through my $1,000 deposit on a Model 3. 

So, how does one invest in this overvalued stock market? Our strategy is spelled out in this fairly lengthy article.

Vitaliy Katsenelson is chief investment officer at  Investment Management Associates  in Denver, Colo. He is the author of “Active Value Investing” (Wiley) and “The Little Book of Sideways Markets” (Wiley). Read more on Katsenelson’s  Contrarian Edge  blog.

There Is Just One Thing Preventing Elon Musk"s Vision From Coming True: The Laws Of Physics

When Elon Musk stepped on stage at Tesla’s product-launch event earlier this month, he knew the market’s confidence in Tesla’s brand had sunk to an all-time low since he took over the company a decade ago. So, he resorted to a tactic that should be familiar to anybody who has been following the company: Shock and awe.

While the event was ostensibly scheduled to introduce Tesla’s new semi-truck – a model that won’t make it’s market debut for another two years, assuming Tesla sticks to its product-rollout deadline – Musk had a surprise in store: A new model of the Tesla Roadster that, he bragged, would be the fastest production car ever sold.

Musk made similarly lofty claims about the battery life and performance of both vehicles. The Tesla semi-trucks, he said, would be able to travel for 500 miles on a single charge. The roadster could clock a staggering 620 – more than double the closest challenger.

There was just one problem, as Tesla fans would later find out, courtesy of Bloomberg: None of it was true.

In fact, many of the promises defy the capabilities of modern battery technology.

Elon Musk knows how to make promises. Even by his own standards, the promises made last week while introducing two new Tesla vehicles—the heavy-duty Semi Truck and the speedy Roadster—are monuments of envelope pushing.

 

To deliver, according to close observers of battery technology, Tesla would have to far exceed what is currently thought possible.

 

Take the Tesla Semi: Musk vowed it would haul an unprecedented 80,000 pounds for 500 miles on a single charge, then recharge 400 miles of range in 30 minutes. That would require, based on Bloomberg estimates, a charging system that"s 10 times more powerful than one of the fastest battery-charging networks on the road today—Tesla’s own Superchargers.

 

The diminutive Tesla Roadster is promised to be the quickest production car ever built. But that achievement would mean squeezing into its tiny frame a battery twice as powerful as the largest battery currently available in an electric car.

 

These claims are so far beyond current industry standards for electric vehicles that they would require either advances in battery technology or a new understanding of how batteries are put to use, said Sam Jaffe, battery analyst for Cairn Energy Research in Boulder, Colorado. In some cases, experts suspect Tesla might be banking on technological improvements between now and the time when new vehicles are actually ready for delivery.

 

“I don"t think they"re lying,” Jaffe said. “I just think they left something out of the public reveal that would have explained how these numbers work."

While Jaffe seems inclined to give Tesla the benefit of the doubt, there’s little, if anything, in Musk’s recent behavior to justify this level of credulity. In recent months, Musk has repeatedly suffered the humiliation of seeing his lies and half-truths exposed. For example, the self-styled “visionary” claimed during the unveiling of the Model 3 Sedan that he would have 1,500 copies of the new model ready for customers by the end of the third quarter. Instead, the company managed a meager 260 models as factory-line workers at its Fremont, Calif. factory struggled to assemble the vehicles by hand as the Model 3 assembly line hadn’t been completed.

Increasingly agitated customers who placed deposits with Tesla back in March 2016 have begun asking for refunds, only to be chagrined by the company’s sluggish response. While nobody in the mainstream press has (somewhat bafflingly) made the connection, Tesla revealed earlier this month that it burned an unprecedented $1.4 billion of cash during the third quarter - or roughly $16 million per day - despite Elon Musk"s assurance that Tesla had its "all-time best quarter" for Model S and X deliveries.

And let’s not forget the fiasco surrounding Tesla’s autopilot software. Musk has repeatedly exaggerated its performance claims. And customers who paid more than $8,000 for a software upgrade more than a year ago have been repeatedly disappointed by delays and sub-par performance.

Musk’s exaggerations about the Tesla Roadster were particularly egregious.

Tesla claims that its new $200,000 Roadster is the quickest production car ever made, clocking zero to 60 in 1.9 seconds. Even crazier is the car’s unprecedented battery range: some 620 miles on a single charge. That"s a longer range than any battery-powered vehicle on the road—almost twice as long as Tesla"s class-leading Model S and Model X.

 

To achieve such power and range, Musk said the tiny Roadster will need to pack a massive 200-kilowatt-hour battery. That’s twice the size of any battery Tesla currently has on the road. Musk has previously said he won"t be making the packs bigger on the Model S and Model X because of space constraints. So how can he double the pack size in the smaller Roadster?

 

BNEF’s Morsy has a twofold answer. First, he expects Tesla will probably double-stack battery packs, one on top of the other, beneath the Roadster"s floor. That creates some engineering problems for the battery-management system, but those should not be insurmountable. Still, Morsy said, the batteries required would be too large to fit in such a small frame.

 

“I really don’t think the car you saw last week had the full 200 kilowatt hours in it,” Morsy said. “I don’t think it’s physically possible to do that right now."

Is it possible that, thanks to incremental improvements in battery density and cost, Musk somehow manages to hit these lofty targets? Perhaps, though, as Bloomberg points out, the fact that Musk is basing these claims on a set of projections that haven’t yet been realized is hardly confidence inspiring.

To be sure, there’s an important caveat to Musk’s claims. While they may be staggeringly exaggerated, there’s still the possibility that incremental improvements in battery technology will make these targets more feasible by the time the models hit the market.

Again, Musk may be banking on the future. While Tesla began taking deposits on the Roadster immediately—$50,000 for the base model—the first vehicles won"t be delivered until 2020. Meanwhile, battery density has been improving at a rate of 7.5 percent a year, meaning that by the time production starts, packs will be smaller and more powerful, even without a major breakthrough in battery chemistry.

 

“The trend in battery density is, I think, central to any claim Tesla made about both the Roadster and the Semi,” Morsy said. “That’s totally fair. The assumptions on a pack in 2020 shouldn’t be the same ones you use today."

However, in its analysis of the feasibility of Musk’s claims, Bloomberg overlooked one crucial detail: Back in August, the company"s veteran director of battery technology, Kurt Kelty, unexpectedly resigned to "explore new opportunities," abruptly ending a tenure with the company that stretched for more than a decade, and comes at a critical time for Elon Musk.

Kelty’s resignation – part of an exodus of high-level executives that is alarming in and of itself - hardly inspires confidence in Tesla’s ability to innovate. We’ve noticed a trend with Tesla: The more the company underdelivers, the more Musk overpromises.

In our opinion, this is not a sustainable business strategy.  
 

Are Electric Cars As Clean As They Seem?

Authored by Zainab Calcuttawala via OilPrice.com,

Tesla’s unveiling of its mass market Model 3 sparked a global interest in making electric vehicles the next big thing in automobile manufacturing. But can the category’s green agenda keep up with its metal and recycling needs?

The concept of bunking the traditional engine for a non-gas guzzling counterpart has been here for decades, but creating an ecosystem for battery charging and bringing vehicle costs down was a challenge for decades.

The sheer force of Elon Musk’s vision is building the infrastructure needed to sustain millions of electric cars in the United States, Europe, and elsewhere. Most major manufacturers have joined the enthusiasm to ditch old-school engines to construct the international fleet of tomorrow.

But this new step doesn’t solve all of the world’s environmental pollution issues related to transportation. The extraction of rare earth minerals, the disposal of lithium-ion batteries, and the sourcing of the energy that powers charging stations are all issues that plague the future of the green argument for electric vehicles.

As Wired notes in an article from last year, electric vehicles are most efficient when they’re light. That way, they need minimal energy to transport their valuable cargo. In search for a light material to carry and conduct batteries, scientists discovered the power of lithium - a highly conductive metal that adds little burden to the vehicle’s frame.

Discovered in 1817, this key ingredient is mostly extracted from deposits in the United States, Chile, and Australia. The most cost-effective method for lithium processing involves pumping salt-rich waters into special evaporation ponds that eventually produce lithium chloride. Then, a special plant adds sodium carbonate to turn the former lithium chloride into lithium carbonate, a white powder.

The whole process requires power, which more often than not is sourced from fossil fuels, not renewables or nuclear energy. This is similar to the issue electric-car charging stations face when evaluating the efficiency of their establishments in eliminating pollution from the environment. In most parts of the U.S., if the stations source their electricity from the grid, they’re just increasing demand for fossil fuels since coal, oil, and natural gas power the majority of the country anyway. Some states, like California, are obvious exceptions because of their heavy investments in green energy, but for the most part, the pattern holds.

Moreover, lithium batteries need proper facilities in order to be recycled once they reach the end of their lifespan. Tesla’s Gigafactory, which promises to produce the electric car manufacturer’s batteries in an environmentally conscious way, says it will lead a program to recycle the hardware responsibly.

“The challenge that we have with recycling these rare metals is enormous,” author David Abraham, from The Elements of Power, says, “because the products that we have now use metals in such a small quantity that it’s not economic to recycle.”

But larger batteries should make a more convincing argument to start responsive recycling programs. Reusing the metal resources in these devices will lower the emissions and mining of rare minerals from the planet, paving the way for a healthier environmental report for future electric vehicles.

“The more batteries that are out there, in various devices, the more interest there is in figuring out how to recycle them or to recapture rare earth metals [from them],” electric car advocate Chelsea Sexton told Wired.

It truly has become a demand issue. As electric cars become increasingly popular, more services will be needed to deal with their production and disposal, accelerating the development of the vehicle category’s branding as the technology of tomorrow’s green Earth.

As Lithium Booms, Some Analysts Sound Note Of Caution

In “Mad Scramble for Lithium Mines From Congo to Cornwall”, Bloomberg puts some colour on current conditions in the red hot sub-sector.

For evidence of just how hot battery ingredient lithium is right now, look no further than Australia’s AVZ Minerals Ltd. A penny stock until a few months ago, the mining hopeful has surged about 1,300 percent this year. The proposition: recasting a remote, century-old tin mine in the Democratic Republic of Congo as a supplier of lithium needed to power electric cars. While its rise has been dramatic, AVZ isn’t alone in the rush to position for a rechargeable-battery boom.

In the U.K., a company (Cornish Lithium) founded by former investment banker Jeremy Wrathall Cornish Lithium is planning to tap thermal springs in Cornwall, a region more famous for its beach coves.

Cornish beach cove…but have you tried driving to one from London (takes hours).

Other companies are hunting for lithium deposits from Germany to Mali, and even Afghanistan plans to tender exploration permits.

As we explained last month, there is so much interest in lithium – mainly due to its application in electric vehicles and energy storage - that the Lithium and Battery tech ETF has seen record volumes and the LME is reportedly considering the introduction of a lithium (carbonate) contract.

While everybody has been fretting about the supply side, some analysts are starting to question whether the supply side will expand too fast in the coming years, as Bloomberg explains.

"You’ve got a scramble for deposits, a demand side that looks very impressive, the question is always around the supply," said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. In the rush to meet demand there is a risk too many mines will be developed and too much metal supplied, Gait said.

 

"When the tide goes out, those that do not have good geology will always be found wanting."

Bloomberg notes that uncertainty about global production growth has encouraged some users to lock-in future supplies of the metal.

However, while production might struggle at first to catch up with demand growth, lithium isn’t really rare compared with other battery metals like cobalt and graphite, according to Bloomberg Intelligence analyst Eily Ong. And mining history is full of cautionary examples of booms that ended in bust when the rush to boost supply overshot demand growth. Iron ore is a recent example, after a boom in Chinese steel production led to a push to build new mines. That turned out poorly for many of the iron ore upstarts that either struggled to build projects or brought mines into production just in time for prices to drop. Global lithium production increased by about 12 percent last year, with batteries accounting for about 39 percent of consumption, according to the U.S. Geological Survey. While Australia was the largest producer in 2016, its identified resources are dwarfed by Argentina and Bolivia, each with about 9 million tons and Chile, with more than 7.5 million tons.

 “This is not a metal that’s going to be exempt from the normal laws of commodity economics,” said Bernstein’s Gait. “Sooner or later we will over supply.”

Bloomberg cites a report from Liberum Capital, the London-based brokerage…

There are about a dozen projects being built or expanded around the world, according to Liberum Capital Ltd. Those, plus a handful of others seen as likely to proceed, could help nearly triple global lithium supply by 2025, but still fall short of expected demand. Beyond that, there’s a further eight projects that haven’t secured financing yet, but could possibly push the market into a surplus by 2025, Liberum said in a report. Lithium carbonate prices have more than doubled in the past two years, according to data from Benchmark Mineral Intelligence.

 

“With prices where they are right now, there’s not a potential lithium mine in the world that doesn’t make an extraordinary amount of money,” said Liberum analyst Richard Knights. “There’s every incentive to bring supply on.”

…and a report from BMO Capital Markets published earlier this week.

Current shortfalls may abate by 2019-20 based on the strong supply response, BMO Capital Markets analyst Joel Jackson said in a note dated Oct. 24. However, uncertainty about assumptions including electric-vehicle penetration, battery technology and lithium supply growth makes the market balance difficult to predict, he said.

The Bloomberg article circles back to AVZ Minerals.

In Congo, AVZ must still prove that extracting the lithium is economically viable. It will also need to rehabilitate an old power station to reach production and build over 600 kilometers (372 miles) of roads to connect the mine with the regional capital of Lubumbashi for exports. Still the project is attracting investors, including China’s Zhejiang Huayou Cobalt Co., one of the world’s biggest refiners of cobalt. "The biggest companies in China are just queuing up," AVZ Chairman Klaus Eckhof said from Dubai.

"They all want to be part of it because they don’t have a pipeline of supply, my phone keeps ringing."

Daimler One-Ups Elon Again; Reveals Electric Semi-Truck Weeks Before Tesla

Weeks before Tesla was supposed to shock the world by revealing their battery-powered semi-truck, Mercedes has once again one-upped the Silicon Valley darling by beating them to the punch.  As Bloomberg points out, earlier today Daimler revealed their E-Fuso Vision One prototype, an electric semi-truck that can carry 11 tons of cargo some 220 miles before having to recharge. 

Daimler AG is jumping the gun on Tesla Inc. by showing off a battery-powered heavy-duty truck weeks before the California electric-car maker’s own planned unveiling, in a sign of the growing rivalry between the companies.

 

The E-Fuso Vision One prototype can carry 11 tons of cargo as far as 350 kilometers (220 miles) before recharging, the world’s largest maker of commercial vehicles said Wednesday in a statement. The truck, which would be geared to shorter intra-city trips, could go on sale within four years in Europe, Japan and the U.S.

 

The truck is part of plans by Daimler’s Fuso brand to add electric and hybrid options across its range of trucks and buses. The announcement steals a march on Tesla, which plans to show off a concept truck on Nov. 16. Chief Executive Officer Elon Musk engaged in a Twitter tussle with Daimler, a former Tesla shareholder, about electric-vehicle spending last month. Daimler’s Mercedes-Benz is also ramping up a line of battery-powered luxury cars to challenge Tesla models.

Of course, this comes as Elon was recently forced to delay Tesla"s much anticipated reveal celebration due to his Model 3 "production hell."

Tesla Semi unveil now Nov 16. Diverting resources to fix Model 3 bottlenecks & increase battery production for Puerto Rico & other affected areas.

— Elon Musk (@elonmusk) October 6, 2017

As we recently pointed out (see: Porsche And Mercedes Plot Musk Offensive With "Anything Tesla Can Do, We Can Do Better" Strategy), Tesla, once the only real electric car game in town, is suddenly facing an onslaught of competition from major auto OEMs who have already figured out how to weld steel on an assembly line.

Daimler AG plans to spend $1 billion to start production of Mercedes-Benz electric vehicles at its Alabama factory, setting the world’s largest luxury-car maker up to battle with battery-car specialist Tesla Inc. on its home turf.

 

The German automaker will build its fifth battery plant globally and create more than 600 jobs in the region, the company said Thursday in a statement. The Alabama factory will assemble electric sport utility vehicles, taking on Tesla’s Model X and making Stuttgart-based Daimler the first European company to assemble plug-in autos in the U.S.

 

“We’re celebrating our 20th anniversary at our production facility in Tuscaloosa, Alabama, and we’re taking this as an opportunity to expand the operation and further fuel growth,” production chief Markus Schaefer said in a Bloomberg TV interview. “We’re very confident for future growth in the U.S. in the long-term. ”

 

Daimler’s investment shows the carmaker’s shift to electric vehicles is taking shape. The German manufacturer is also in talks to expand its Denza joint venture with BYD Co. in China with additional models, Chairman Wang Chuanfu told a group of reporters in the southern Chinese city on Thursday.

As Sanford Bernstein analyst Max Warburton recently noted, companies like Mercedes and BMW are pursuing an "anything Tesla can do, we can do better" strategy.

The company is pursuing an "anything Tesla can do, we can do better" strategy, Sanford Bernstein analyst Max Warburton said in a recent note to investors. "Mercedes is convinced it can match Tesla battery costs, beat its manufacturing and procurement costs, ramp up production faster and have better quality. It is also confident its cars will drive better."

Of course, the only question now is when will Tesla shareholders finally realize that their monopoly is slowly coming to an end?

Tesla Reportedly Preparing To Open Factory In Shanghai

As Tesla falls further and further behind in its quest to produce 10,000 Model 3 sedans a week by the end of next year, WSJ reported Sunday that, after months of talks with local government officials, Tesla has finally received permission to open a factory in Shanghai, one of China’s designated “free trade zones.”

If accurate, the report would signal a major shift in China’s policy toward foreign automakers. Until now, US carmakers like GM hoping to sell cars in China’s domestic market have been forced to work (and more importantly share profits and technology) with a local partner.

But more surprising than the news itself is the timing, as Tesla continues to struggle with major production delays at its Fremont Calif factory, a problem that will no doubt be exacerbated by the company’s decision to lay off hundreds of workers and replace them with cheaper contract labor in what has been characterized as a blatant attempt to suppress unionization efforts. WSJ says cars produced at the Shanghai factory would primarily supply local markets while allowing Tesla to sale cars across the region. Meanwhile, any cars shipped to the US from the Shanghai factory would face a 25% tariff.

The scoop comes from WSJ’s Tim Higgins, who has broke a handful of big Tesla stories in recent months, including a report earlier this month about workers at Tesla’s Fremont factory being forced to assemble Model 3s by hand because the factory"s production line hadn"t yet been completed.

“Electric-car maker Tesla Inc. has reached an agreement to set up its own manufacturing facility in Shanghai, according to people briefed on the plan, a move that could help it gain traction in China’s fast-growing EV market.

 

The deal with Shanghai’s government will allow the Silicon Valley auto maker to build a wholly owned factory in the city’s free-trade zone, these people said. This arrangement, the first of its kind for a foreign auto maker, could enable Tesla to slash production costs, but it would still likely incur China’s 25% import tariff.

 

Tesla is currently working with the Shanghai government about details of the deal’s announcement, such as timing, one of these people said. The effort comes as President Donald Trump, who has been critical of China’s trade policies, prepares to visit Beijing early next month.

 

A Tesla spokesman didn’t have a comment beyond reiterating the company’s previous statement in June that it planned to “clearly define” production plans in China by year’s end. The Shanghai government didn’t reply to a request for comment."

While the news isn’t exactly a surprise - Tesla has seemingly been in talks to open a factory in China for ages and has hinted that a factory might be opening soon - given the timing, one can’t help but question whether the reporting is accurate.

To this point, the Wall Street Journal has a rule - common among legacy media organizations - whereby if a company’s communications department is the source of leaked information in a story, the paper won’t report that the company refused to comment or declined to comment - because it wouldn’t be true. Tesla’s comms department was named in the story, so therefor the information either came from sources close to the Shanghai government, or some other third party (or, of course, a combination).

As WSJ points out, Tesla is still working out the details of the agreement. Presumably, breaking ground remains a long way off. Perhaps there’s still time for the deal - assuming one is in fact being negotiated - to fall through.

Of course, being allowed to operate in the country without a local partner would be an unprecedented step for China’s free-trade zones. The Chinese government wouldn’t set such a precedent without careful consideration, though it did circulate a proposal on possibly allowing foreign EV makers to circumvent the partner rule if they build their operations in the country’s free trade zones.

Until now, foreign auto makers have built cars in China through joint ventures with local manufacturers. That allows them to avoid the 25% tariff on autos, but also forces them to split profits, and potentially share technology, with the local partner—something that has tripped up Tesla’s previous efforts to expand there.

 

Under current rules, the cars Tesla builds in the free-trade zone would still count as imports and incur the tariff. Auto analysts in Shanghai doubt the Chinese government has any incentive to give Tesla special treatment.

 

“Government regulators examine every deal and try not to set a precedent,” said Bill Russo, chief executive of Automobility, a Shanghai-based consultancy, and a former Chrysler executive. “Whatever deal Tesla gets, others will want it too."

Of course, the logic of competing for a foothold in China’s domestic market - despite the myriad obstacles that remain for foreign companies, not the least of which are the PBOC’s stringent capital controls, which make it difficult for foreign corporations to repatriate profits - is unimpeachable. According to a study published by the China Association of Automobile Manufacturers this week, Chinese buyers are expected to have purchased 700,000 electric vehicles by the year’s end.

Sales have contineud to climb even as the Chinese government, which has spent billions on EV subsidies, this year pared back financial incentives for EVs by 20%. Of course, the increase is probably because the government has embraced other more coercive methods to push customers toward electric vehicles as it tries to combat a worsening air pollution problem in its cities. For example, the local government has dramatically increased the share of license plates awarded to EV owners to incentivize purchases.

Elon Musk wouldn’t be the first American to try to compete in China’s EV market. Chinese electric car company BYD, which is backed by Warren Buffett, was the best-selling electric carmaker last year and sells seven models in the country.

In August, General Motors said it would start selling the Baojun E100, a tiny electric car costing about $5,300 after national and local electric vehicle incentives, CNNMoney reported.

China’s EV market, already the world’s largest, is expected to experience rapid growth over the coming decade, as the Chinese government pushes a plan to eliminate fossil fuel-burning vehicles entirely over the coming decades. The Chinese government is targeting 7 million EV sales a year by 2025, up from 351,000 last year, and in September it ordered all auto makers already operating in China to start producing EVs by 2019. Officials have also said they are working on a plan to ban gasoline cars.

Tesla won’t report third quarter earnings until next month, but the company reported record cash burn in the second quarter (though it did have about $3 billion of cash on hand)…

...meaning it will likely need to issue more debt to finance the construction of the factory. In August, Tesla announced a $1.5 billion bond offering purportedly to ramp up production on the Model 3.

But regardless of the cost, China is an essential market for Tesla. And as Elon Musk scrambles to justify the company’s obscene valuation as its recent production difficulties have forced it to cede the mantle of most valuable domestic automaker to GM.

However, there is plenty of skepticism as to whether this is Muskian "fake news"...

How’s the Buffalo Gigafactory coming along? Or even the first Gigafactory, for that matter. Must be near the 3Q reporting date. $TSLA https://t.co/lmCe6fhkPm

— Diogenes (@WallStCynic) October 22, 2017

"This Is A Tax Bomb": Norway Considers Massive "Tesla Tax"

Elon Musk can"t seem to catch a break lately with cash burn rates surging to new highs every quarter and embarrassing rumors suggesting that the company, one that was supposed to be the most technologically sophisticated auto manufacturer in the world, has been making parts by hand to try to get Model 3s on the road.

Now, after being one of the largest contributors to Musk"s taxpayer-funded enrichment scheme for years, the country of Norway may have just decided that enough is enough with legislators considering a new tax for buyers of electric cars that weigh over two tons...which, as of now, would pretty much only include Teslas.  As the Financial Times notes today, the proposal could tack on a massively punitive $10,500 tax to the purchase of every Tesla in Norway.

Norway is proposing a “Tesla tax” that would hit owners of the heaviest electric cars in a move that critics say will undermine the Scandinavian country’s standing as a pioneer of zero-emission vehicles.

Sales of electric cars and hybrids accounted for 60 per cent of new vehicle sales in Norway last month, fuelled by extensive subsidies in taxes, tolls and parking fees.

But the centre-right minority government in Oslo is now proposing a one-off tax on all electric cars that weigh more than two tonnes — something that at present would predominantly target Teslas and potentially add up to NKr82,800 ($10,500) to the cost of buying one.

“This is a tax bomb. This is gambling with the whole electric vehicle market. It is a bad signal to send and will affect consumers,” Christina Bu, general secretary of the Norwegian Electric Vehicle Association, told the Financial Times.

To date, Norway has been by far the biggest adopter of electric cars and has vowed to sell only zero-emission new vehicles by 2025. But critics argue that their popularity comes down to an extremely generous set of subsidies that can cut the price of the most expensive Teslas by about NKr450,000.

When and how to withdraw those subsidies has sparked a huge political debate. Some Norwegian politicians point out that many of the early adopters of electric cars were rich households buying Teslas. Bus drivers in the richest parts of Oslo complain that bus lanes are clogged with electric cars, which are permitted to use them.

Before the tax proposal on Thursday, Andreas Halse, environmental spokesman in Oslo for the opposition Labour party, said although electric cars generated no emissions they contributed significantly to congestion in the capital as well as damaging roads because of their weight. “It is not just about emissions; there are other considerations, too, such as the use of cars versus public transport,” he added.

The new tax proposals would add at least NKr36,000 and as much as NKr82,800 to the cost of the Tesla Model X, a sport utility vehicle popular in Norway because of its ability to tow trailers, a feature appreciated by families who own mountain cabins.

Of course, as Morgan Stanley recently pointed out, Teslas and other EVs have recently been found to actually generate more CO2 than they save in many countries around the world.  As a stark reminder to our left-leaning political elites who created these companies with massive taxpayer funded subsidies, Morgan Stanley pointed out that while Teslas don"t burn gasoline they do have to be charged using electricity generated by coal and other fossil fuels.

This is where Tesla, along with China’s Guoxuan High-Tech fall short.

“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.”

In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.”

Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.

Could it be that Tesla might one day have to compete in a world without the benefit of massive taxpayer-funded subsidies?  One can dream...

Tesla's Dirty Secret: It Was Banging Out Parts Of The Model 3 By Hand

As it turns out, Elon Musk’s warning earlier this year that the Tesla Model 3 roll out would be “production hell” was an understatement.

In a damning – if unsurprising – report, the Wall Street Journal revealed Friday that Tesla managed to produce only a tiny fraction of the 1,500 Model 3 sedans that it promised customers because key parts of the cars are still being assembled by hand, far away from the assembly line at the company’s Fremont factory. As of a few weeks ago, the advanced assembly line that Tesla has long boasted about - and which it had spent billions upon billions in capex to build -  wasn’t ready and the company was working frantically to try and finish it, while keeping the arrangement a secret from purchasers and investors.

More apropos, the report strongly suggests that Tesla’s Monday warning about “production bottlenecks” might not be its last as Elon Musk’s dream of building millions of the "everyman’s electric car" melts before his eyes. 

Unknown to analysts, investors and the hundreds of thousands of customers who signed up to buy it, as recently as early September major portions of the Model 3 were still being banged out by hand, away from the automated production line, according to people familiar with the matter.

While the car’s production began in early July, the advanced assembly line Tesla has boasted of building still wasn’t fully ready as of a few weeks ago, the people said. Tesla’s factory workers had been piecing together parts of the cars in a special area while the company feverishly worked to finish the machinery designed to produce Model 3’s at a rate of thousands a week, the people said.

As one analyst quoted by WSJ snydely pointed out, “that’s not how mass production vehicles are made.”

Automotive experts say it is unusual to be building large parts of a car by hand during production. “That’s not how mass production vehicles are made,” said Dennis Virag, a manufacturing consultant who has worked in the automotive industry for 40 years. “That’s horse-and-carriage type manufacturing. That’s not today’s automotive world.”

When called for comment by WSJ, an angry Tesla spokesperson delivered a statement that could have been taken right out of Trump"s playbook, slamming what Tesla described as a "decade-long campaign of misleading reporting" by the WSJ.

In a statement, a Tesla spokeswoman declined to answer questions for this article and said, “For over a decade, the WSJ has relentlessly attacked Tesla with misleading articles that, with few exceptions, push or exceed the boundaries of journalistic integrity.

While it is possible that this article could be an exception, that is extremely unlikely.” The Journal disagrees with the company’s categorization of its journalism.Musk has staked Tesla’s future (not to mention the company’s massively inflated valuation) on the success of the Model 3, which was intended to be Tesla’s first attempt at building an electric vehicle for “mass market” consumers, priced at a relatively affordable $35,000 a car.

As WSJ pointed out, a memorable statement made by Musk during the July launch event for the Model 3 has proven unusually prophetic. Given Musk’s warnings about “production hell”, it’s surprising that the company’s investors are only now learning about the primitive methods employed by the company.

Tesla introduced the Model 3 at an event outside the company’s factory in July, when Chief Executive Elon Musk drove a shiny red Model 3 onstage as hundreds of his employees cheered the first sedans rolling off the production line.

Within minutes of stepping out of the new vehicle, Tesla’s leader warned his engineers and designers the coming months would be challenging. “Frankly, we’re going to be in production hell. Welcome, welcome!” he said to laughter. Behind the scenes, Tesla had fallen weeks behind in finishing the manufacturing systems to build the vehicle.

Or, as the philosopher said, hell is other people, not other conveyors.

Last Monday, Tesla announced it had produced only 260 of the promised 1,500 sedans, an average of only three cars per day. Musk blamed unspecified “production bottlenecks” for the shortfall. That unconscionably charitable characterization of the company’s production problems has now been exposed as totally misleading.

“Although the vast majority of manufacturing subsystems at...our California car plant...are able to operate at high rate, a handful have taken longer to activate than expected,” the company said at the time.

Then on Friday, Musk came up with another excuse, when in the late afternoon, he tweeted that Tesla was ramping up production of its solar-powered Powerwall home batteries, ostensibly to deliver them to Puerto Ricans in need – which is now the reason for both the Model 3 delay and the delay in the unveiling of the Tesla Semi; furthermore it is also an attempt by Musk to cynically use the tragedy in Puerto Rico as cover for his company"s production failure.

Tesla Semi unveil now Nov 16. Diverting resources to fix Model 3 bottlenecks & increase battery production for Puerto Rico & other affected areas.

— Elon Musk (@elonmusk) October 6, 2017

Worse, as the WSJ points out, although Tesla has struggled with production issues in the past – most notably during the rollout of its 2015 sports-utility vehicle – the obstacles facing the Model 3 are far more threatening to the company’s long-term financial health.

Tesla’s rollout of the Model X sport-utility vehicle in 2015 also was plagued by quality and design issues that left suppliers scrambling and hourly workers having to rush to meet lofty goals. And with employees at the company’s Fremont factory telling WSJ that it could be another month before the assembly line is ready, the production problems plaguing the Model 3 could pose a much bigger threat to the company’s long-term financial health.

Painting a comical scene of primitive, ad hoc production methods more appropriate for some Lada factory deep in the bowels of Russia and certainly not the pinnacle of modern production, the WSJ described a factory where workers struggled to perform tasks typically reserved for heavy machinery as they strained to piece the cars together.

One worker who spent time in the Model 3 shop—dubbed by some as Area 51 because of the limited access and secretive nature—described watching young workers in September struggling to move large pieces of steel to weld together instead of using robots as is traditionally the case.

“In place of the robots…you’ve got two associates lining up with a big, old spot welder hanging from the ceiling by a chain, and you’ve got one associate kind of like balancing it and trying to get the welder in position, and you’ve got another welder with his arm guiding it,” this worker recalled seeing. “Sparks go flying.”

It almost makes one wonder where all those billions in capex spending are going?

Finally, the report also contradicts a claim Musk made while speaking to analysts in August that the Model 3s would be “full production cars.”

In August, Mr. Musk told analysts that the Model 3s coming out of the factory were “not engineering validation units.”

“They’re fully certified, fully DOT-approved, EPA-approved production cars,” Mr. Musk said, referring to the Department of Transportation and the Environmental Protection Agency. “These are not prototypes in any way. They’re not validation anything. They are full production cars.”

The bottom line is that as much as we’re sure Musk would "love" to help the good people of Puerto Rico rebuild their devastated energy grid - especially if it involves billions in US taxpayer subsidies - he’s not the savior that the Isle of Enchantment needs right now. And while we are confident that Tesla shareholders will soon get what they deserve, we look forward to what the next inevitable "mule with a spinning wheel" product will be...

California Mulls Combustion-Engine Car Ban: "You Could Stop All Sales By 2030"

California, the state which single-handedly turned Elon Musk into the billionaire that he is today by forcing taxpayers to subsidize his unprofitable electric vehicle scam via "Zero Emission Vehicle" credits, is now considering a full ban of combustion-engine cars by as early as 2030. The potential ban was discussed by Mary Nichols of the California Air Resources Board, the same folks who decided to regulate cow farts last year, who told Bloomberg that Governor Jerry Brown has expressed interest in a ban.

Governor Jerry Brown has expressed an interest in barring the sale of vehicles powered by internal-combustion engines, Mary Nichols, chairman of the California Air Resources Board, said in an interview Friday at Bloomberg headquarters in New York. Brown, one of the most outspoken elected official in the U.S. about the need for policies to combat climate change, would be replicating similar moves by China, France and the U.K.

“I’ve gotten messages from the governor asking, ‘Why haven’t we done something already?’” Nichols said, referring to China’s planned phase-out of fossil-fuel vehicle sales. “The governor has certainly indicated an interest in why China can do this and not California.”

California has set a goal to cut carbon dioxide emissions by 80 percent from 1990 levels by 2050. Rising emissions from on-road transportation has undercut the state’s efforts to reduce pollution, a San Francisco-based non-profit said last month.

“To reach the ambitious levels of reduction in greenhouse gas emissions, we have to pretty much replace all combustion with some form of renewable energy by 2040 or 2050," Nichols said. “We’re looking at that as a method of moving this discussion forward.”

"There are people who believe, including who work for me, that you could stop all sales of new internal-combustion cars by 2030. Some people say 2035, some people say 2040,” she said. “It’s awfully hard to predict any of that with precision, but it doesn’t appear to be out of the question.”

Of course, the irony that seems to be lost on Jerry Brown and Mary Nichols is that, according to Morgan Stanley, electric cars generate more CO2 than they save.  As a stark reminder to our left-leaning political elites who created these companies with massive taxpayer funded subsidies in the United States, Morgan Stanley pointed out that while electric cars don"t burn gasoline they do have to be charged using electricity generated by coal and other fossil fuels.

This is where Tesla, along with China’s Guoxuan High-Tech fall short.

“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.”

In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.”

Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.

Meanwhile, despite Brown"s desire for "Hope & Change," even the U.S. Energy Information Administration says that "renewables" will represent less than 20% of electricity generation in the U.S. by 2040.

Of course, the problem is that a California ban on combustion engine cars would effectively be the same as a full U.S. ban given the size of the California market. 

Embracing such a policy would send shockwaves through the global car industry due to the heft of California’s auto market. More than 2 million new passenger vehicles were registered in the state last year, topping France, Italy or Spain. If a ban were implemented, automakers from General Motors Co. to Toyota Motor Corp. would be under new pressure to make electric vehicles the standard for personal transportation in the most populous U.S. state, casting fresh doubts on the future of gasoline- and diesel-powered autos elsewhere.

The end result of this effort to "save the environment" will be more expensive vehicles, landfills full of lithium-ion batteries and more coal-fired generation plants...but, somehow we suspect those "inconvenient facts" are lost on our politicians and enviros who seem determined to subsidize Elon"s trip to Mars.

China's Electric (A.K.A. Coal-Fueled) Car Companies Soar On Promise Of Petrol Vehicle Ban

A few weeks ago we highlighted an "inconvenient fact" for the publicly traded electric car manufacturers and the environmentally-conscious Left, namely that, according to Morgan Stanley, electric cars generate more CO2 than they save.  As a stark reminder to our left-leaning political elites who created these companies with massive taxpayer funded subsidies in the United States, Morgan Stanley pointed out that while electric cars don"t burn gasoline they do have to be charged using electricity generated by coal and other fossil fuels.

This is where Tesla, along with China’s Guoxuan High-Tech fall short.

“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.”

In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.”

Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.

Which seems like the perfect backdrop to report on the recent comments of Xin Guobin, vice-minister of industry and information technology, who told a forum in the northern city of Tianjin over the weekend that his ministry had started “relevant research” for establishing a timeline to phase out petrol and diesel vehicles in the Chinese market.  According to The Guardian, Xin said the policy would be implemented "in the near future."

“These measures will promote profound changes in the environment and give momentum to China’s auto industry development,” he said in remarks broadcast by CCTV state television.

“Enterprises should strive to improve the level of energy saving for traditional cars, and vigorously develop new energy vehicles according to assessment requirements,” he said.

China produced and sold more than 28m vehicles last year, according to the International Organization of Motor Vehicle Manufacturers.

Ironically, China generates 65% of its power, more than double the U.S., from the "dirtiest" fuel available: coal.  So, while the move to electric cars will undoubtedly be praised by blissfully ignorant politicians and environmental lobbyists, the end result will be even higher carbon emissions.

Of course, this is hardly a China-centric development as Bloomberg recently noted that almost 80% of the global auto market is pushing toward a phase-out of petroleum cars in favor of more "environmentally friendly" electric vehicles.

Meanwhile, aggregate global electric vehicle sales are expected to overtake internal combustion engines within about 20 years.

Ironically, the end result of this effort to "save the environment" will be more expensive vehicles, landfills full of lithium-ion batteries and more coal-fired generation plants...but, somehow we suspect those "inconvenient facts" are lost on our politicians and enviros who seem determined to subsidize Elon"s trip to Mars.

Oh well, at least electric car investors in China are having a good day...

China"s new energy car shares surging, after govt official said over the weekend China to make timetable for banning diesel and petrol cars pic.twitter.com/uIeZkilMhZ

— YUAN TALKS (@YuanTalks) September 11, 2017

Tesla Is The World's 4th Largest Automaker (Despite Only Selling 76,000 Cars In 2016)

It’s been another breakout year for Tesla. Over the course of 2017, the company’s market capitalization has soared beyond those of major manufacturers like Ford, GM, BMW, Honda, and Nissan. This thrust can be partly attributed to the company’s Model S, which reigns supreme as the top-selling plug-in electric car worldwide in 2015 and 2016.

But, as Visual Capitalist"s Jeff Desjardins notes, more importantly for Tesla, this massive momentum is based on the company’s much-anticipated future performance. Investors and analysts eagerly anticipate progress as the company ramps up production of the more affordable Model 3, and many also strongly believe that Elon Musk brings an “X Factor” that could translate into future returns.

In today’s charts, we look at Tesla’s ascent in valuation to become the #4 ranked automaker globally, and also the #1 maker in America. We also show why the value assigned to Tesla’s astonishing valuation may be premature, at least based on conventional metrics.

TESLA’S RAPID ASCENT

In the opening months of 2013, Tesla was just starting to plan deliveries for its Model S. At the time, the company was worth a mere $3.9 billion – just 7% of the value of Ford.

Since then, Tesla’s value has skyrocketed to make it the most valued auto company in North America:

Despite only producing 76,230 vehicles in 2016, Tesla is now the biggest of the “Big 3” – and this puts a lot of pressure on the company to live up to the vast expectations held by investors and media.

THE SPECULATOR’S GAMBIT

With so much hype and value assigned to expectations of future performance, Tesla and its enthusiastic investors are in a potentially tough spot.

Even though it is the most valued car company in the United States, Tesla is much less impressive by more conventional metrics:

The company has just a fraction of the employees, vehicle deliveries, and revenue of its competitors. Tesla also treads a similar path to Amazon, in that it will likely take a while for the company to ever post a profit.

Here’s another look, this time showing Tesla’s metrics as a percentage of GM’s:

Tesla is producing less than 1% as many cars as GM, but is worth more in market value.

That’s not to say that Tesla will not ultimately live up to expectations – but it does put into perspective the risk of banking on these future returns.

'Inconvenient' Fact: Morgan Stanley Says Electric Cars Create More CO2 Than They Save

For all the funds out there looking to fill their portfolio with "environmentally conscious" companies working diligently to avert an inevitable global warming catastrophe that will result in the extinction of the human race, we guess in lieu of their actual fiduciary duties to simply make money for their investors, Morgan Stanley has compiled a list of how you can get the most "environmental healing" per dollar invested. 

As MarketWatch points out, it"s not terribly surprising that of the 39 publicly-traded stocks analyzed, the solar and wind generation companies landed at the very top of Morgan Stanley"s environmentally friendly the list. 

Morgan Stanley identified 39 stocks that generate at least half their revenue “from the provision of solutions to climate change,” something it said was a central component of investing to make a difference, as opposed to just a making a buck.

“In our view, impact investing needs to begin with companies whose products and services have a notable positive environmental or social impact,” wrote Jessica Alsford, an equity strategist at the investment bank.

Not surprisingly, alternative-energy companies ranked the highest in terms of their positive impact, and the “top five climate-change impact stocks” were all manufacturers of solar and wind energy: Canadian Solar, China High Speed Transmission, GCL-Poly, Daqo New Energy, and Jinko Solar.

What is surprising, however, is that publicly traded electric car manufacturers, darlings of the environmentally-conscious Left, were actually found to generate more CO2 than they save.  As a stark reminder to our left-leaning political elites who created these companies with massive taxpayer funded subsidies, Morgan Stanley points out that while Teslas don"t burn gasoline they do have to be charged using electricity generated by coal and other fossil fuels.

This is where Tesla, along with China’s Guoxuan High-Tech fall short.

“Whilst the electric vehicles and lithium batteries manufactured by these two companies do indeed help to reduce direct CO2 emissions from vehicles, electricity is needed to power them,” Morgan Stanley wrote. “And with their primary markets still largely weighted towards fossil-fuel power (72% in the U.S. and 75% in China) the CO2 emissions from this electricity generation are still material.”

In other words, “the carbon emissions generated by the electricity required for electric vehicles are greater than those saved by cutting out direct vehicle emissions.”

Morgan Stanley calculated that an investment of $1 million in Canadian Solar results in nearly 15,300 metric tons of carbon dioxide being saved every year. For Tesla, such an investment adds nearly one-third of a metric ton of CO2.

Ironically, as we recently pointed out, Zero-Emission Vehicle (ZEV) credits (a nicer way of saying taxpayer funded corporate welfare) is pretty much the only "product" that Tesla seems to make money selling and is the only reason they managed to "beat" earnings in Q2.

I"m referring to zero-emission vehicle, or ZEV, credits. California and several other states require that a certain proportion of the vehicles sold by an automaker emit no greenhouse gases. These cars earn the automaker credits, and if they don"t have enough to meet their quota, they can buy extra ones from someone who does. As Tesla only makes vehicles that run on batteries and emit nothing, it usually has a surplus for sale.

The profit margin on these is very high, perhaps 95 percent. The implied $95 million of profit equates to about 58 cents a share. Tesla reported a loss of $1.33 per share this week -- beating the consensus forecast by 55 cents.

This isn"t the only time ZEV credits have played a big role for Tesla. Looking back to early 2013, selling credits has given Tesla"s earnings extra oomph in many quarters, likely taking them above consensus forecasts in some (on an implied basis, assuming that 95 percent margin):

Of course, Q2 wasn"t the first time that ZEV credits played a huge role in padding Tesla"s cash flow...

Ponder that for a moment...as taxpayers we"re actually subsidizing a product (and an eccentric Silicon Valley billionaire) that is bad for the environment...

Tesla Cars Aren't As Carbon (And Taxpayer) Friendly As You Think

Authored by Duane Norman via Free Market Shooter,

Tesla proponents love to remind people how their vehicles are “carbon free” (in spite of Tesla CEO Elon Musk’s own carbon profligate lifestyle):

Fact: the Tesla Model S is an environmentally friendly, zero emissions electric vehicle that won’t pollute the air like gas-powered cars. Carbon emissions from a gas car’s tailpipe has a dangerous impact on global warming…. In addition, Tesla CEO Elon Musk explains that, “combustion cars emit toxic gases. According to an MIT study, there are 53,000 deaths per year in the U.S. alone from auto emissions.”

But in reminding people about how they don’t burn fossil fuels, they make sure to omit and/or obfuscate all the other emissions-laden factors that go into production of Tesla automobiles, including the oft-unspoken costs of the vehicles to the taxpayer and to other auto manufacturers.

Start with the power source for the Tesla; their electric power plant uses lithium-ion batteries to store the electricity required to run the car.  And while a good amount of lithium is produced at salt lake brines that use chemical processes to extract the requisite lithium…

…a large (and growing) amount of lithium is sourced from hard-rock mining, which is also referred to as strip mining:

This type of mining involves not just all the carbon used to extract the lithium from mines, it “strips” the land of its forests, which is far more environmentally (and carbon) detrimental.  And while it is likely impossible to know exactly where Tesla sources its materials from, a closer examination on Tesla’s impact on the mining industry should paint a crystal clear picture:

Should the concept capture the imagination of Americans who are increasingly conscious of reducing their carbon footprint demand for these crucial elements could skyrocket in addition to the already robust global demand for lithium, nickel and copper. Major mining companies are already “future proofing” their businesses for climate change by focusing more investment into commodities that will be required by the renewable energy industry.

You can’t make this stuff up – Tesla and other renewable energy industries are going to save the world by mining its natural resources to excess, without regard for the environmental impact and carbon emissions generated in the process.  You shouldn’t be surprised to seldom hear this mentioned by Elon Musk, or the liberal crowd that champions electric vehicles.

It’s hardly the only way Tesla’s manufacturing process is anything but emissions-free.  Just take a look at their factory:

Even TreeHugger.com, of all places, muses at the irony of the Tesla plant:

The factory is in the middle of nowhere, really — 23 miles from the nearest city of any size, Reno, Nevada. If we assume that this is the average distance workers are commuting (and it is likely a lot farther), that the cars are powered by gasoline, and that they are average size, then according to the EPA they pump out about 411 grams of CO2 per mile or 18.9 kilograms per round trip. Multiply that by 3,000 and you have 57 tonnes of CO2 generated every day just by the the workers driving to the factory. The average car puts out 4.7 tonnes per year. So every day that the Gigafactory workers drive to work to make batteries for carbon-saving electric cars, they generate as much CO2 as 12 conventional cars do in a year.

And though no one should put it past Tesla to source power for its plant via a “renewable” source, would you really be surprised to find some fossil fuel powered machinery in the plant, given Musk’s own callous attitude towards carbon emissions when it comes to space launches and his own private flights?

None of this even mentions the tax incentives Tesla receives.  Electric vehicles are subsidized by the federal government via a tax credit, which is no small chunk of change; $7,500, to be exact:

The federal incentive to purchase an electric vehicle comes in the form of a $7,500 tax credit. In order to qualify for this credit, one must have a tax burden of at least $7,500 and take ownership of a newly purchased electric car before the vehicle manufacturer reaches its 200,000th EV sold in the U.S.

Since Tesla has not sold 200,000 vehicles in the US, the tax credit is still alive and well.  Which means that if you say the average sticker price of a Tesla is $100,000 (still high according to estimates), the federal government is subsidizing 7.5% of the purchase price.

And that is before you even count the “Zero-Emission Vehicle” (ZEV) credits that Tesla makes a mint on.  Bloomberg explained exactly how important these are to Tesla:

I’m referring to zero-emission vehicle, or ZEV, credits. California and several other states require that a certain proportion of the vehicles sold by an automaker emit no greenhouse gases. These cars earn the automaker credits, and if they don’t have enough to meet their quota, they can buy extra ones from someone who does. As Tesla only makes vehicles that run on batteries and emit nothing, it usually has a surplus for sale.

The profit margin on these is very high, perhaps 95 percent. The implied $95 million of profit equates to about 58 cents a share. Tesla reported a loss of $1.33 per share this week — beating the consensus forecast by 55 cents.

So Tesla earns a subsidy not just from the American taxpayer, it earns a subsidy from all the auto companies that are forced to buy ZEV credits from Tesla in states (primarily California) that force ZEVs upon automakers.  And somehow, Tesla still spends more money than it takes in.  

That’s correct; in spite of the massive subsidies it receives to operate, Tesla is not even profit-neutral, and the cars are not carbon-neutral, despite what the proponents will have you believe.  Of course, none of this even factors in the carbon impact of whatever electricity source Tesla owners charge their cars with, which is a topic you could write a whole ‘nother article on.

Tesla cars are subsidized using a business model that is anything but “dollar-neutral”,  and they are built and operated using anything but a “carbon-neutral” process .  Can you imagine what could happen if the subsidy “plug” was pulled?

Note: What would be a “solution” for the “climate change” crowd to push that would actually be honest?  Look no further than the aforementioned TreeHugger.com to fill you in:

Nothing has changed, which is why this TreeHugger will continue being critical of any kind of car, and will continue to promote walkable cities, bicycles and public transport as the real solutions to the problem of decarbonizing our society.

“Decarbonizing” our society obviously isn’t something I believe in, so don’t expect me to join Lloyd Alter in his carbon-free city.  However, I acknowledge that he’s at the very least participating in an intellectually honest discussion about CO2, and not grandstanding about how much he’s helping the environment by plopping himself behind the wheel of a Tesla. 

Tesla Ignores Q2 Record Cash Burn And Slashes Its Model X And Model S Prices

So what do you do when you"ve just burned through a record $1.2 billion of cash in one quarter, expect to burn an additional $2 billion in capex in the second half of the year and haven"t a prayer of generating positive earnings at any point in the near future?  Well, you slash your product prices, of course.

Apparently this is exactly the strategy that Elon Musk has decided to pursue with his Model X after quietly slashing its price tag from $82,500 to a far more affordable $79,500 last night.  Tesla explained the price cut via the following statement:

“When we launched Model X 75D, it had a low gross margin. As we’ve achieved efficiencies, we are able to lower the price and pass along more value to our customers.”

But it wasn"t just the base MSRP on the Model X that got a price cut, as electrek points out, Tesla also decided to cut prices on the their Model S and throw in their $5,000 premium package for free.

All dual Motor Model S vehicles also got a slight $1,500 price drop, but the Model S P100D and Model X P100D were the most affected by last night’s changes.

Tesla updated the options of the vehicles to add more premium features as standards.

The “$5,000” Premium Package is now being absorbed into standard features for top versions of Tesla’s vehicles. Here’s the Premium package and the new standard features on a Model S P100D:

Of course, as we recently pointed out in our review of Tesla"s 2Q 2017 earnings, this is probably the exact right move for a company burning through roughly $13 million in cash every single day.  Here are some of the highlights from our recent earnings review:

One month after Tesla stock tumbled when the electric car maker announced that it had missed Wall Street estimates for the second quarter, delivering only 22,000 vehicles instead of the 22,912 expected, moments ago Tesla reported adjusted, non-GAAP Q2 earnings which beat expectations, with an adjusted loss of $1.33, better than the -$1.88 expected, which curiously was identical to the -1.33 loss in Q1.

Tesla continued to burn cash, and in the second quarter it outdid not only itself but Netflix too, with a record cash burn of -$1.16 billion - or roughly $13 million per day - almost double what it burned in Q1. In Q3, Tesla"s CapEx was $959 million, a number which is set to surge as the Model 3 launch continued well into into Q3: Tesla expects it will burn another $2 billion in CapEx in the second half.

Understandably, the cash burning behemoth was proud to announce that it had more than $3 billion in cash on hand at the end of Q2. There is just one problem, and this wasn"t announced in the letter: Tesla also $3.9 billion in accounts payable and accrued liabilities, as the company drains all net working capital sources of cash it can find. Meanwhile, accounts receivable actually declined. This was the first quarter in which paybales and accrued were nearly $1 billion more than cash and equivalents!

All that said, Tesla investors don"t really seem to care about cash burn.  And, since lower prices will undoubtedly result in a couple extra sales throughout the year, albeit at a cash loss, we"re quite certain that investors will applaud this latest move by Musk...genius if we understand it correctly.